Saving Biodiversity: Investing in Climate Change is Not Enough

The two urgent environmental problems that will define this millennium and our lifetimes are climate change and biodiversity loss. Although both are the result of the actions of mankind, they are distinct issues and their consequences are, inextricably linked. The detrimental effects of biodiversity loss contribute to the magnitude of the climate change crisis, while climate change exacerbates biodiversity loss. Examining the nexus of these challenges is valuable to academics, scientists, and investors alike with a shared interest in finding solutions that simultaneously mitigate both challenges while ensuring the future sustainability of the planet.

Why is Biodiversity Important?

Biodiversity sustains ecosystems, supplies oxygen for clean air, protects water and soil, and breaks down pollution and waste. Protecting biodiversity contributes to climate stability through terrestrial and aquatic carbon absorption. Economically, biodiversity is a vital source of raw materials for products in industries such as food, pharmaceuticals, textiles, wood, and energy.¹  In essence, biodiversity ensures the sustainability of life on earth.

How Does Climate Change Affect Biodiversity?

Climate change, or global warming, is primarily the result of human activity related to the burning of fossil fuels for electricity, transportation, and household cooking. These gases (composed of carbon dioxide, methane, and nitrous oxide) remain in the atmosphere for years, even decades, radiating heat back into the Earth’s atmosphere. This entrapment of radiation results in the warming of the planet’s atmosphere, affecting climate and weather patterns.

Climate change threatens biodiversity by disrupting ecosystems as well as the plants and animals that dwell in them. Changes in weather and seasonality alter food availability and feeding patterns; reproductive cycles and fertility; habitability of location due to temperature, water, and landscape adaptability; and migratory patterns. These migratory patterns result in the introduction of non-native “invasive” species to environments, as rising land and sea temperatures increasingly force species to relocate to cooler climates. In and of itself, this migration can exacerbate climate change.

Other Threats to Biodiversity

As harmful as climate change is to biodiversity, there would be a crisis of species loss even without greenhouse gas emissions and global warming due to resource depletion of wetlands and forests, exploitation of fish and endangered animals for food, and the introduction of invasive species into non-native environments through human movement, such as by boats and ships, and even automobiles.

The causes of biodiversity loss can be summarized into five primary driving factors, easily remembered by the acronym HIPPO (a species currently vulnerable to extinction): habitat loss, invasive species, pollution, human population, and overharvesting.²  Due to the cumulative impact of these factors, approximately 25 percent of all species (estimated to be between 8 and 10 million) are currently endangered, and 1 million creatures are at risk of extinction within this decade.

Potential Solutions

A multitude of remedies that are beneficial in addressing both the biodiversity loss and climate change crises do exist, including nature-based solutions, such as regenerative agriculture or natural infrastructure; emission-capture technologies that reduce the need for disruptive ground extraction; and circular economy strategies that recycle and avoid the need to source new raw materials. Through these solutions and others, farmers can maximize crop yields, communities can protect against natural disasters, upstream energy producers may receive favorable tax breaks, and manufacturers are able to eliminate or reduce the cost of buying new raw materials. These solution sets not only mitigate the biodiversity loss and climate change, but also, offer financial opportunities for cost savings and liability prevention.

Karner Blue Capital Proprietary Research Methodology

Karner Blue Capital (KBC) biodiversity research analysts benchmark companies operating in specific industries considered to have material dependencies and/or impacts on biodiversity and climate change using KBC’s proprietary industry-specific frameworks. Only companies that have met an overall ESG threshold are eligible for consideration. The KBC frameworks, or models are comprised of key performance indicators that represent significant environmental, social and governmental risks specific to each industry. These risks are wide ranging and those attributed to “E” include climate change, resource dependency, pollution and invasive species mitigation. Risks specific to “S” include threats to human health, including pandemics, social license to operate, and changing societal and consumer preferences. Risks specific to “G” include legislative (local and national) regulatory changes and liabilities related to the changes in those rules.

KBC analysts also evaluate industry and company-specific innovations and opportunities, focusing on those that develop technologies to mitigate their impacts, invent alternative products and services that disrupt traditional status quo operating protocols, and seek solutions to the complex problems of biodiversity loss and climate change. Only those companies leading their industry in biodiversity performance are further evaluated for financial opportunity by our investment team. We apply Quality at a Reasonable Price fundamental financial analysis to assess companies in the investable universe on growth, profitability, valuation, and balance sheet metrics to create a portfolio of public equities characterized by both robust sustainability practices and financial prospects. This is the work of Karner Blue Capital. We invite you to learn more here.

 

Article by Vicki Benjamin, CEO of Karner Blue Capital. Vicki is a co-founder of the Adviser and has been its Chief Executive Officer since it commenced operations as an investment adviser in 2018. Vicki maintains a 57% ownership stake in KBC. Ms. Benjamin was a partner at KPMG from September 2005 until February 2015, when she joined Calvert Investments, Inc. as its Chief Financial Officer. She served as the President of Calvert Investments, Inc. from January 2017 through June 2020. She received a B.A. from the University of New Hampshire and an M.B.A. from Bentley University McCallum Graduate School of Business.